US calls on G20 to avoid competitive devaluation

CONTROLS:The head of the US delegation to the G20’s meeting this week said that the group must do more to ensure that market forces determine exchange rates

AFP, WASHINGTON and LONDON

The US on Monday urged the G20 economic powers, which holds a meeting later this week, to avoid competitive currency devaluation that would threaten economic growth.

“To ensure growth strategies in the world’s largest economies are mutually compatible and promote global growth, the G20 needs to deliver on the commitment to move to market-determined exchange rates and refrain from competitive devaluation,” said US Treasury Undersecretary for International Affairs Lael Brainard, who will lead the US delegation to the meeting.

Japan’s recent monetary easing has stoked fears, especially in Europe, of a currency war between the major economies as policymakers seek to devalue their currencies to make exports more competitive.

Brainard notably called on China to do more to let the yuan float more freely in the market.

“It will be important that China ... reinvigorate the move to a -market-determined exchange rate and interest rates,” she said.

Brainard was speaking at a news conference focused on the G20 finance chiefs meeting that opens on Friday in Moscow.

She underscored that some emerging-market economies have tightly run exchange-rate regimes with extensive capital controls.

Meanwhile, the global banking industry on Monday urged the G20 economic powers to deliver on pledges to harmonize financial regulation, warning their commitment appears to be fraying.

The new managing director of the Institute of International Finance (IIF), Tim Adams, also sought to downplay concerns about a currency war, an issue expected to be at the top of the agenda at G20 finance talks later this week.

Adams said press reports that the G7 advanced economies were preparing a joint statement in favor of market-determined foreign exchange rates would be an “important step.”

Adams said it was critical that the G7 and G20 deliver clear communications from the summit to help cool recent currency market volatility.

“Unless some clarity is offered ... these movements will continue,” he said at a news conference in Washington.

Still, he said, “I don’t think we’re on the verge of a currency war,” though he acknowledged it could be a “skirmish.”

The IIF, which represents more than 450 financial institutions around the world, said its members were “deeply troubled” by the trend toward “increasingly fragmented financial regulation.”

The tendency of nations to act to protect their own financial services sectors and taxpayers against risk “is threatening to undo decades of cross-border cooperation,” the IIF said. “If we fail to preserve the spirit — and the fact — of international harmonization of financial regulation, we run the risk of inhibiting the global economic regeneration so desperately needed by people everywhere.”

The G7 top industrialized nations said in a statement by current G7 president Britain yesterday that “excessive volatility” in exchange markets undermines stability.

However, the statement stood by foreign exchange rates set by the market, despite objections from France last week to market-driven currency values, against a background of concern about competitive devaluations.

“We, the G7 ministers and governors, reaffirm our longstanding commitment to market determined exchange rates and to consult closely in regard to actions in foreign exchange markets,” they said in a brief collective statement.